When Danger Brewed…
Let us face it. We were in dire economic straits. Verifiable facts and figures of where our fiscal health stood and where we were dangerously headed with alarming speed necessitated a radical policy shift in the previous dynamics to avoid dire economic consequences as a nation. Given the worrisome financial state of the country in the crucial season where the shadow of fiscal emergency hovered daily, eventual national bankruptcy and consequent paralysis of other fundamental aspects of governance would have been a matter of ‘’when’’ not ‘’íf’’ had we continued maintaining the status quo ante in the energy sector. We urgently needed a shift in the previous financial arrangement in the sector. Deregulation and subsidy removal were long overdue.
Changing Economic and Political Dynamics
The economic and political dynamics are completely different between 2012 and 2016. The ‘sudden’ turn of positions by some stakeholders was subjected to controversies in that many believed that the very individuals who kicked against the removal of fuel subsidy in 2012, seemed to be its strongest proponents in 2016. But the explanation is simple. Really. Circumstances are different. We watched the fate of the Nigerian economy continued to hang precariously in the balance, with frustrating inaction daily digging us further into the trenches of regression and it was simply time to put a permanent stop to it.
In 2012, crude oil prices was around $100/barrel compared to under $40 this current year. In January of 2016, price reached a record low of $27/barrel. Furthermore, at $3 billion in foreign earnings per month in 2012, there was a stable supply of foreign exchange to support essential imports; unfortunately, earnings were down to below $600 million in 2016 resulting in severe shortages and inability to fund the $225 million required for importation of petrol alone. Most importantly and unlike now, the prevailing atmosphere of governance in 2012 did not inspire confidence that the savings accrued from the removal of subsidy would have been deployed judiciously to the benefit of the citizens.
Something had to give. After several months of excruciating hardships from incessant fuel scarcities, on one hand, and the near total depletion of government’s coffers due to low crude oil prices on the other, Nigeria was in need of a way forward, but had very few choices. Considering the colossal loss of productive hours on queues at petrol stations and the traffic arising therefrom, the choice to explore the near fool-proof 200 year-old strategy of allowing market forces to determine prices was fortunately made. Entered Adam Smith and the Invisible Hand factor.
The Capitalist Vs The Socialist
The father of modern economics and pioneer of political economics, Adam Smith, wrote throughout his life (1723-1790), about an ‘invisible hand’ that determined levels of supply, demand, the prices of goods and services, as well as wealth creation and distribution. Adam Smith, postulated in his book, The Wealth of Nations, that the individual is led to inadvertently promote the common good of society much more effectually by an irony in which he, more driven by his own gain rather than by a conscious pursuit of public interest, actually promotes the latter.
The Invisible Hand at Work
In the emergent scenario following deregulation in the Nigerian downstream sector, we saw that although maximum pricing per litre of petrol was pegged by government at 145 Naira, this cap was not a default pump price but only meant to protect the consumer to avoid arbitrarily high pricings by marketers. Interestingly, we began to witness not only more availability of the commodity but also varying levels of price crashes from the stipulated maximum cap due to competition. The marketers, in a bid to outdo each other for sales and retain customers, began to bring down pump pricing to different levels including extents as low as 137 Naira per litre at some stations. The crashes in pump prices are expected to continue on a downward trend as open market dynamics force more competition and pricing flexibility. In a bid to seek out his own gains by attracting customers, the Nigerian oil marketer is forced by the mythical invisible hand of competition to promote collective interest of the consuming public although he is more driven by individual interest rather than a conscious pursuit of public welfare. This is the powerful irony.
The Future and a Call to Citizens’ Vigilance
In the bigger picture, we believe that this new regime will not only give us a semblance of order in our efforts towards economic growth and development, but has immediate and consequent ripple effects that will transform the quality of life. The saved resources that could have gone down the usual drain of subsidy can now be deployed to build refineries, promote infrastructural development with attendant multiplier effects of job creation and a more vibrant manufacturing sector among other benefits. We can now begin to look ahead and plan around a more functional and stable economy with far greater prospects for growth and development. We believe the government is now in a position to make better fiscal policies for long term benefits.
We must also keep a watchful eye to ensure that government is held accountable such that the potential benefits of this good decision are not squandered. As the custodians of this nation, it is everyone’s right and responsibility to see that we promote only its best interests. Now that ‘invisible Hand’ is deployed to work for good in our downstream sector, allowing market forces – supply and demand- to determine prices, we believe, like Adams Smith, that when left to its own natural devices, our economy would begin to thrive for good. The future is here.
We want to say a big ‘thank you’ to the over 300,000 people who visited our social media platforms to participate in the Deregulation in the Downstream Sector debates. As one of the very first commentators on the new pricing regime, our view understandably generated a lot of interest. Comments have been both for and against our position but nevertheless, we were enthused about the robustness of the debates the Channels TV interview of one of our Partners created. We wish to appreciate everyone who participated and we hope this article has clarified our position. We value and will continue to engage our followers as much as possible.